Amendments to the Payment Services Act and several related laws concerning virtual currencies are expected to come into effect after April 2017. In response to the amendments, the Financial Service Agency of Japan announced the draft of the Cabinet Office Ordinance concerning virtual currency exchange service providers on December 28 2016. The Ordinance sets forth the details of the rules for virtual currency exchange service providers (VCESP).
The new regulations introduced by the Ordinance are composed of: the conditions for registering as a VCESP and, measures for ensuring the appropriate and proper implementation of virtual currency exchange services.
As for the conditions for registering, the applicant must be a stock company and have an office and a representative in Japan. The applicant must also fulfil financial requirements, such as a minimum capital amount of JPY 10 million ($87,300) and a positive net assets amount.
Once registered as a VCESP, the applicant has to comply with the following rules: (i) it must take measures for the security management of the systems related to its virtual currency exchange services; (ii) in cases where the applicant outsources some of its virtual currency exchange services to external service providers, it must supervise those external service providers appropriately by confirming the status of the outsourced services; (iii) it must take certain measures to protect users, such as (a) explaining that virtual currencies are not Japanese or foreign currencies, and, (b) producing tri-monthly reports on the transaction records and the balances of users' cash and virtual currencies; (iv) it must segregate users' deposits in the form of cash and virtual currencies from its own in a manner specified by the Ordinance; (v) it must undergo external audits at least once a year with respect to the segregation of management and financial statements; (vi) it must establish internal management systems for dealing with complaints regarding its services fairly and appropriately; (vii) it must create and keep books and records related to its services; and, (viii) it must prepare and submit an annual report and quarterly reports to the relevant authority in the form specified by the Ordinance.
Companies who have already conducted virtual currency exchange services on the effective date of the amendment act and the Ordinance must register within six months from the effective date. However, the above rules apply to them even before they register.
It should be noted that even a company registered as a VCESP in accordance with foreign laws is not able to provide virtual currency exchange services for people in Japan without registering as described above.
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